Market Timing as a Factor of Capital Structure of Russian Companies

Prior research on market timing theory in relation to developing markets only analyzes equity issuance and provides contradictory results. It is reasonable to suppose that the practice of market timing can benefit companies from developing countries because they operate in emerging capital markets, which are less efficient and face a higher level of information asymmetry. This paper aims to investigate the influence of both equity and debt market timing on capital structure of Russian companies. Using sample of Russian nonfinancial companies between 2008 and 2014, we tested market timing hypothesis. To test the robustness of the results, we also include Russian-specific control variables of corporate governance and ownership. The results show that Russian companies time the debt market to attract extra capital if the value of the interest rate in the current period is lower than the rates in previous periods. The net debt issued decreases when interest rates are high, which indicates debt market timing. The results also suggest that Russian companies use bond market timing to make decisions about equity issuance. However, we find the results of equity market timing analysis to be inconclusive. This paper consists of 4 sections, 10 tables, 2 appendixes, 60 pages total, and uses 38 references.